India: Capital First-IDFC Bank in bank mega merger soon

India’s Capital First, a fast-growing provider of loans to consumers and small businesses backed by buyout firm Warburg Pincus, said on Saturday, January 13, it would sell itself in a US$1.5 billion all-share deal to infrastructure lender IDFC Bank.

The buyer upgrades its retail business and brings a highly rated executive on board. The seller gets the bank license it always wanted.

Capital First’s market value has grown ten-fold in the five years since it rebranded. Chairman V. Vaidyanathan, who earlier built the successful retail business at ICICI Bank, has grown a US$3.5 billion loan book extending small sums to entrepreneurs and the emerging middle class. Net profit has grown at an impressive 40% compound annual rate for five years, and net non-performing loans are around just 1% of the overall book.

IDFC Bank earns half the return on equity of Capital First, and so trades at half the valuation, at a price of 1.4 times forward book value. The buyer scrapped a fiddly merger last year with part of Ajay Piramal-backed Shriram Group, which would have accelerated the growth of its retail business.

Full Content: The Economic Times

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